Senate, House Tax Bills Differ on State Aid

The states’ quest for fiscal aid took a step forward Thursday when the Senate Finance Committee, under pressure from moderate Republicans, voted to include $20 billion for state governments as part of President Bush’s tax cut plan.

The final outcome for state aid remains far from clear, however, since the House included no relief for states in the $550 billion tax cut bill it passed Friday. The House and Senate must work out their differences after the full Senate considers the committee’s recommendations early next week.

State aid was included in the Senate legislation to satisfy the demands of a group of moderate Republicans whose support for Bush’s tax cut plan depended in part on financial relief for states.

“Not only do we have to get businesses growing again, but we need to provide for those who have already been hurt by the downturn,” said Oregon Sen. Gordon Smith (R), a supporter of state fiscal aid. “The bill passed today will keep more money in the hands of Oregon families, create jobs, and put over $230 million in the state’s coffers.”

Other senators making a strong push for state aid include Maine’s Olympia Snowe and Susan Collins, both Republicans, and West Virginia’s Jay Rockefeller, a Democrat. This group of moderates is crucial to breaking the partisan deadlock over Bush’s tax-cut proposal in the closely divided Senate.

Senate Majority Leader Bill Frist (R-Tenn.) said Wednesday he supported including some state aid in the tax legislation.

The full Senate was expected to take up the committee’s recommendations early next week, with observers confident state fiscal relief will remain part of the final Senate package. Major hurdles remain, however, since the House’s more generous version of the tax cut contains no such aid, and Bush has said he opposes aid for states. His original $726 billion tax-cut proposal contained no state fiscal relief.

State governments face more than $50 billion in deficits for fiscal year 2004, which begins July 1 in all but four states. It will be the third straight year of widespread state budget deficits. To close the gaps, state lawmakers have cut funding in almost every area of government, including education and health care for the poor. Many have also raised taxes.

The precise allocation of the Senate Finance Committee’s $20 billion is currently being discussed by committee members, although a rough outline is in place.

Senate staffers say about $10 billion would be disbursed in the form of general purpose grants that states could use for a wide variety of programs, from transportation to education. The other $10 billion would be dedicated to shoring up Medicaid, the state-federal program that provides health care to low-income Americans. State officials complain that Medicaid’s costs are growing beyond what they can afford.

News of the committee’s inclusion of fiscal relief for states brought immediate cheers from state and local officials.

“The new funding will help fund essential services, including education, job training, health care, transportation and public safety,” said Boston Mayor Thomas Menino, president of the U.S. Conference of Mayors.

The mayors have been pushing for fiscal relief along with the major associations of state lawmakers, including the National Governors Association and the National Conference of State Legislatures